Salvaging Social Security

Following the news from Washington has never been easy. But there’s an added challenge today: the problem of large numbers. It’s almost impossible for anyone to really grasp the idea of a billion, let alone a trillion. Even the experts get confused.

“I don’t have the exact numbers in front of me, but I think it’s -- it went from $1.75 billion to $1.84 billion,” White House spokesman Robert Gibbs said recently when asked about the national deficit. He quickly corrected himself: “a trillion -- I’m sorry.”

This isn’t a trivial difference. A billion is a thousand million, and a trillion is a thousand billion.

Why does this matter? Frankly, our economic well-being depends on it. The Social Security Trustees recently released their 2009 annual report, and it’s packed with numbers that are difficult to comprehend. But it’s critical that we try.

In “net present value,” the report says Social Security has promised to pay out $7.7 trillion more in benefits than it will receive in taxes. “Net present value” means Congress would have to invest $7.7 trillion today to have enough money to pay all of Social Security’s promised benefits between 2016 and 2083.

That’s more than twice what the federal government will spend this year on everything it buys. And again, this investment would be on top of the funding Social Security will collect through payroll taxes.

The big numbers matter more this year. Lawmakers have passed an $850 billion “stimulus” bill. President Obama has set aside hundreds of billions more for health care reform.

But as they embark on a historic spending spree, policymakers are beginning to lose a windfall they’ve come to count on. Starting this year, the annual Social Security surpluses that Congress has been borrowing and spending on other programs will begin to shrink. That means larger deficits today and less money for Congress to spend in the years ahead.

The Trustees say these surpluses will disappear for good in 2016. Social Security will then start paying out more every year than it takes in. Lawmakers will have to raise taxes or slash spending on other federal programs to pay benefits.

Sure, there’s a Social Security trust fund filled with IOUs. But, unlike your 401(k), there’s no real money behind those -- just a promise by one wing of the government to provide money to another wing. The real money will have to be taxed or borrowed, as is the case for all government spending.

What does this mean for you? Depends on how old you are.

Workers at or near retirement age have nothing to fear. Social Security remains solvent and can afford to pay them full benefits, including an annual cost of living increase. And at that time, there’s little doubt that political pressure will force Congress to act to keep benefits flowing.

The news isn’t nearly as good for younger workers.

They’ll continue to pay Social Security taxes throughout their working lives. But they shouldn’t expect to get back everything they invest. They’ll also be on the hook to fund some $6 trillion needed to repay the Social Security trust fund in the decades ahead.

The time to act is now. Lawmakers should begin raising the retirement age, so future workers pay in longer before they can collect benefits. They should also create personal retirement accounts which, like an IRA, would allow individuals to set aside a small portion of their Social Security taxes -- real money -- in accounts they would own and control.

It won’t be easy, but we can preserve Social Security for future generations. The question is, do we have the will to do so?